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Why AIG Is Furious With Warren Buffett

By Steve Symington - Sep 14, 2013 at 9:00AM

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Warren Buffett made no mystery of his recent insurance aspirations, but that hasn't stopped him from incurring AIG's wrath.

As the old saying goes, "You don't get rich without making a few enemies along the way."

According to a recent report from The Wall Street Journal, the typically amiable Warren Buffett has been busy doing both of late. Specifically, people familiar with the situation say the folks at American International Group (AIG 1.39%) were simply fuming when Buffett's Berkshire Hathaway (BRK.B -0.29%) (BRK.A -0.59%) poached four top AIG executives back in April.

Of course, AIG predictably spoke up to highlight its remaining self-described "seasoned and very deep bench," but as I noted at the time, you can bet they would have rather not had to worry about replacing their best executives in the first place.

Buffett wasn't done yet
Then in June, whether intentional or not, Buffett took another jab at AIG by stating in an official Berkshire press release: "It's official: We are moving into commercial insurance in a substantial way, and we are here to stay."

He then went on to tout the strengths of his newly formed Berkshire Hathaway Specialty Insurance segment, including its "proven underwriting discipline and financial strength, along with a stellar management team" (emphasis mine), a list that consisted of five ex-AIG employees.

Worse yet for AIG, the WSJ report says Berkshire's new business has quickly expanded to 62 total employees, including around 15 additional hires from AIG.

As noted by fellow Fool Matt Koppenheffer, the author of The Motley Fool's free special report "Warren Buffett's Greatest Wisdom": "For skeptics of the quality of AIG's core insurance business, I think this goes a long way to show just how good it is. But I also know this: Berkshire is not poaching the underperformers at AIG." 

And that's exactly why AIG finally decided it had had enough, ultimately threatening to sue Berkshire earlier this summer. That was, at least, until the two companies reached a truce that involved having Berkshire agree not to hire any more AIG employees for one year.

Even so, given the new direct rivalry, it's worth noting AIG also recently decided it will no longer send any of its reinsurance business to Berkshire going forward.

Here's what's at stake
If you're wondering why AIG is so frustrated at this point, consider that back in June, AIG controlled a solid 20% of the $25 billion U.S. excess and surplus market. Berkshire, by contrast, held only around 1.6%.

While we haven't received any specific updates from Buffett regarding how Berkshire's specialty insurance business has progressed since then, David Bidmead, the CEO of Marsh & McLennan's (MMC 0.17%) U.S. insurance operations, says Berkshire has been "successful in acquiring a good amount of business" of late, showing AIG certainly isn't the only company worried about Buffett's expanding reach.

And remember, this isn't the first time Buffett has had to build the market share for one of Berkshire's insurance businesses from the ground up. As he reminded us in his 2012 letter to Berkshire shareholders, it took nearly 18 years to grow GEICO's share of the personal-auto market from 2.5% to 9.7%, a period during which premium volume increased by nearly sixfold to $16.7 billion. 

In the end, whether the competition likes it or not, you can bet that same long-term focus will permeate the team Buffett has put in place at Berkshire Hathaway Specialty Insurance.

Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends and owns shares of AIG and Berkshire Hathaway and has options on AIG. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$439,528.92 (-0.59%) $-2,620.08
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$292.07 (-0.29%) $0.84
American International Group, Inc. Stock Quote
American International Group, Inc.
$51.83 (1.39%) $0.71
Marsh & McLennan Companies, Inc. Stock Quote
Marsh & McLennan Companies, Inc.
$165.60 (0.17%) $0.29

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